Gas-on-gas accounted for 78% of European market in 2019
Oil indexation down to 22% from 24% the previous year
Gas-on-gas pricing accounted for 48.4% of global demand
Petrotahlil — A total of 78% of the gas consumed in Europe last year was priced based on gas-on-gas competition, according to the latest pricing survey by the International Gas Union published July 2, an increase of two percentage points year on year.
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Gas indexed to oil and oil products accounted for the remaining 22% of the market, the IGU said, down from 24% in 2018.
"Europe is one of the regions where the most significant changes in price formation mechanisms have taken place," it said, with a broadly continuous move away from oil indexation to gas-on-gas competition since 2005.
The changes have reflected a number of factors over the years, initially a decline in the volume of gas imported under the traditional oil-indexed contracts being replaced by imports of spot gas and increasing volumes traded at hubs.
This was followed by the ending of contracts or the renegotiation of the terms to include a proportion of hub/spot price indexation in the pricing terms, or even a move to 100% hub price indexation.
In 2019, there was a further rise in gas-on-gas competition in Europe as LNG imports surged with rising spot LNG cargoes, it said.
In Northwest Europe (Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands and the UK), oil indexation has all but been eliminated, with gas-on-gas competition accounting for 95% of the market last year and just 5% indexed to oil.
Central, southeast Europe
Central Europe (Austria, the Czech Republic, Hungary, Poland, Slovakia, Switzerland) saw a sizeable shift in 2019, the IGU said.
Oil indexation declined from 22% in 2018 to 19% in 2019, while gas-on-gas competition increased from 76% in 2018 to 80% in 2019.
This, the IGU said, "principally reflects increased imports of spot gas, often from Germany, and contract renegotiations."
In the Mediterranean (Greece, Italy, Portugal, Spain and Turkey), gas-on-gas pricing also rose significantly last year, according to the report.
In 2019, some 53% of sales were priced against gas -- up from 44% in 2018 -- while the share of oil indexation dropped from 56% in 2018 to 47%.
This reflected an increase in spot LNG imports last year into the region, the IGU said.
Globally, the share of gas-on-gas pricing in the market rose by one percentage point in 2019 from 2018 to reach 48.4%.
This, it said, was almost all at the expense of oil price indexation whose share fell by around one percentage point to 18.5%.
"This was largely driven by a significant shift in LNG imports to gas-on-gas competition and away from oil," it said.
The rise in gas-indexed LNG imports in 2019 reflected both a sharp rise in spot LNG cargoes and the rise in Europe LNG imports, as a result of the surge in LNG supply, focused on the trading markets of Northwest Europe.
Regulated gas prices remain a constant in the global gas market with a total share of around 29.3%.
Prices that are politically regulated in response to the need to cover increasing costs, or possibly as a revenue raising exercise, had a 13.6% share of the total globally, the IGU said.
Demand in this category totaled some 541 Bcm last year and is in 23 countries, with the Middle East dominating -- Iran, Saudi Arabia, the UAE and Oman -- followed by the former Soviet Union (Russia and Ukraine), and Latin America (Argentina, Bolivia and Peru).
This was followed by regulated prices designed only to cover the cost of service, which accouted for 10.2% of global demand.
Consumption in 2019 in this category was some 407 Bcm and is in 15 countries, mainly the former Soviet Union and Asia (China and Bangladesh), followed by Asia Pacific (Malaysia) and Africa (Egypt and Nigeria), it said.
Regulated prices at below cost -- often as a form of state subsidy to the population -- accounted for 5.5% of the global market.
Prices under the bilateral monopoly model, determined by bilateral discussions and agreements between a large seller and a large buyer, accounted for 3.3% of the global total.
They include supplies in the Middle East (Qatar, the UAE, Israel and Iraq) and countries of the ex-USSR importing gas from Russia, the IGU said.